As Douglas Melville settles into a corner booth at Shopsy’s Deli in downtown Toronto, the classic rock sounds of Queen’s Somebody to Love are flowing from the restaurant’s sound system, drowning out the lunchtime chorus of knives and forks. “I’m okay, I’m alright,” the band’s front-man Freddy Mercury is declaring. “Ain’t gonna face no defeat …”

A view of a branch of a TD Canada Trust bank in Toronto November 9, 2007.
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They are prophetic words, since much of the following hour-long conversation with Mr. Melville is about to take on a similar tone. Mr. Melville is trying to steer his organization – the Ombudsman for Banking Services and Investments (OBSI) – into the future. But it’s a future that looks increasingly uncertain.

Not many Canadians know who Douglas Melville is. Even in the banking sector, he’s not exactly a household name. But if you’ve never heard of him, that’s probably a good thing.

As the country’s independent bank ombudsman, he is the guy Canadians call upon when they’re at loggerheads with their financial institution. It could be missing funds or disputed charges, but if you end up at Mr. Melville’s door, it means the dispute has become intractable. Short of going to court, OBSI is often the forum of last resort for many unhappy bank customers.

In his three years at the helm of OBSI, Mr. Melville has developed a sometimes-tense relationship with a few of the country’s largest banks. Needless to say, in certain banking circles, Mr. Melville is not somebody to love.

Now, OBSI is under siege. It started three years ago when Royal Bank of Canada, the country’s biggest bank, decided to pull out of OBSI for the resolution of consumer banking complaints. Unhappy with the time OBSI was taking to resolve cases, RBC selected its own ombudsman, private firm ADR Chambers, to referee complaints. Last year, Toronto-Dominion Bank did the same, amid rumblings it was also not happy with delays and the cost of operating the system.

It is a situation Mr. Melville compares, ruefully, to letting banks bring their own referee to a hockey game. But Ottawa disagrees. Finance Minister Jim Flaherty said last month the federal government was pushing forward with a system that will allow banks to use an ombudsman of their choosing, provided they meet federal guidelines that have not yet been finalized.

This has left the future of OBSI up in the air, and the landscape of consumer protection in Canada uncertain, Mr. Melville argues.

Banks are still required to send brokerage complaints to OBSI, but not retail banking complaints. With two banks already gone, if just one of Bank of Nova Scotia, Bank of Montreal or Canadian Imperial Bank of Commerce decides to leave OBSI, the organization would be much diminished. We cover this much ground even before the waiter arrives to take our order.

Trained as a lawyer with a background in public policy, Mr. Melville is a speed talker with the ability to jump from point to point without so much as a breath, yet he chooses his words carefully and deliberately, as a litigator might. The waiter tries at least twice to take our order, but is forced to retreat from the conversation, blank notepad in hand.

Mr. Melville’s argumentative nature hasn’t won him much favour with the biggest banks. Though RBC and TD say the primary reason they left OBSI was case delays, a source with one of the other Big Five banks dismisses this suggestion, saying there were personality conflicts.

But, as ombudsman, Mr. Melville doesn’t see it as his job to acquiesce. When the waiter finally returns, he orders an extra-lean smoked meat sandwich – the specialty here – and when it arrives, he grabs it with two hands, then resumes talking before taking a bite. The sandwich hangs in the air for what seems like an eternity.

Dispute resolution shouldn’t be voluntary, he argues. “If ‘voluntary’ means the banks are free to walk, that tension can undermine the functioning, because you’re always afraid what you might do will cause a firm to just leave,” he says. “Each case that comes before us, we have an obligation to look at it on the merits and say, in our view, what’s fair and reasonable in this situation – without the fear of a firm getting offended.”

Next week, Mr. Melville will sit down with his board of directors to discuss OBSI’s future given Mr. Flaherty's recent announcement. The focus will be on how to operate in this new multiparty system, rather than continuing to fight with a few banks. Much will be determined by what standards the government sets for other ombudsmen who want to compete with OBSI. “The story has yet to be written in this new environment,” he says.

ADR Chambers, the arbitration service chosen by RBC and TD, disputes any suggestion that its service is in a conflict of interest since it is hand-picked by those banks, and paid by them. (OBSI also receives funding from the banks, but collectively and based on the size of each institution.) ADR Chambers maintains it can do its job credibly and fairly, and is willing to have its case files randomly audited to prove it.

Mr. Melville pauses for a bite, but then puts the sandwich down. Do the banks have to listen to OBSI? Or any other mediator for that matter? No one really knows.

“In this new environment, what would we hope for? We would hope that the regulations set clear expectations … that will ensure the system has as much integrity as possible,” he says.

OBSI was created 16 years ago, when the government of the day briefly considered moving to a federally operated bank ombudsman to protect consumers. At the time, Canada’s banks argued a federal body wasn’t necessary, and the industry could create its own. The establishment of OBSI by the banks saved Ottawa the headache of having to fund a new department to do the job.

But if TD and RBC are right, for argument’s sake, and OBSI has become inefficient, then what is the solution for consumers? Mr. Melville argues the fix isn’t to open up the ombudsmen service to unfettered competition, which would let the banks potentially influence their own referee. It’s to efficiently resolve complaints through the existing channel.

Halfway though lunch, the music in the restaurant has changed to something resembling Kenny G, and the tension in the conversation ratchets down a few notches. As Mr. Melville tucks into the second half of his sandwich, it becomes clear there is a bigger picture here, regardless of which side of the debate any of the interested parties have staked out for themselves.

Regardless of who handles a consumer complaint, banking customers are often at a disadvantage. The customers aren’t always right – in fact, the banks are often found to be in the right, owing to a misunderstanding on the client’s part – but the power imbalance needs to be contemplated, Mr. Melville argues.

“We’re already playing in the most challenging of mediation scenarios, which is a huge power imbalance between the parties,” he said. “Because you’ve got individuals who sometimes don’t even know how to articulate their complaint. They know something’s gone wrong, but they don’t know banking.”

Ultimately, however, the Finance Department will shape the future. It may or may not be one that includes OBSI, Mr. Melville admits. Having finished his sandwich, he pokes his fork at a pickle on his plate. Indeed, it’s quite a pickle he’s in.

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